Consumer electronics: TVs based on bulky cathode-ray tubes are giving way to flat-panel models. How will the market evolve?

TELEVISIONS, it seems, can never be too wide or too thin—and increasingly, they are wide and thin at the same time, thanks to the growing popularity of flat-panel televisions based on plasma and liquid-crystal display (LCD) technology. Flat-panel TVs are stylish, do not take up much room, and do justice to the crystal-clear images produced by DVD players, digital-cable boxes and games consoles. Sales of LCD TVs in particular are expected to account for an ever larger portion of the market (see chart) as consumers embrace these new technologies at the expense of bulky models based on old-fashioned cathode-ray tubes (CRTs). LCD-based models are expected to account for 18% of televisions sold in 2008, up from just 2.2% in 2003, according to iSuppli, a market-research firm.

LCD TVs are the latest example of a technology from the computer industry causing a stir in consumer electronics. For years, anyone who wanted to buy a flat-panel television had to buy a plasma screen, a large and expensive (a 42-inch model costs around $3,500) option. LCD technology, already used in flat-panel computer monitors and laptop displays, makes possible smaller, more affordable flat-panel TVs: a 17-inch model costs around $800, for example.

The prospect of a much bigger market has prompted new entrants, including PC-makers such as Dell and HP, and established consumer-electronics firms, such as Motorola and Westinghouse (both of which stopped making TVs decades ago) to start selling televisions alongside the established television-set manufacturers. For PC-makers, which already sell flat-panel monitors, diversifying into TVs is no big leap. For consumer-electronics firms, the appeal of flat-panel TVs is that they offer much higher margins than conventional televisions. During the late-2003 holiday season, makers of flat-panel TVs, both LCD and plasma, succeeded in creating a tremendous buzz around their products, says Riddhi Patel, an analyst at iSuppli.

But it did not translate into sales to the extent that the manufacturers had hoped. Although more people are now aware of flat-panel TVs, many are still deterred by their high prices. The expense is difficult to justify, particularly since a 30-inch LCD television can cost up to four times as much as a comparable CRT-based model, with no real difference in picture quality.

Flat-panel TV-makers have now, says Ms Patel, begun to cut their prices. For one thing, they are sitting on a lot of unsold inventory: the panel-makers made too many panels, the TV-makers built too many TVs, and the retailers ordered more than they could sell.

Prices are also expected to fall as production capacity is stepped up. Sharp opened a new “sixth generation” LCD factory in January. In May, Matsushita, the Japanese firm behind the Panasonic brand, announced that it would build the world's biggest plasma-display factory. And in July, Sony and Samsung announced that their joint-venture, a “seventh-generation” LCD factory at Tangjung in South Korea, would start operating next year. There is concern that this year's record investment in LCD plants could lead to overcapacity next year. For consumers, however, this is all good news: a glut will mean lower prices.

The prospect of sharp price declines over the next few years means the flat-panel TV market is on the cusp of change. At the moment, LCD is more expensive than plasma on a per-inch basis: a 30-inch LCD TV costs around the same as a 40-inch plasma model. The vast majority of LCD TVs sold are currently 20 inches or smaller; larger sizes cannot yet compete with plasma on price. So plasma has the upper hand at larger sizes for the time being, while LCDs dominate at the low end.

For anyone looking to buy a flat-panel TV, this makes the choice relatively simple: if you want anything smaller than a 30-inch screen, you have to choose LCD; and if you are thinking of buying bigger, plasma offers better value. (Above 55 inches, TVs based on rear-projection are proving popular, having benefited from the buzz around flat-panel displays.)

Watch out plasma, here comes LCD

As the new LCD plants start running, however, LCD TVs will increasingly be able to compete with plasma at sizes as large as 45 inches. The new seventh-generation LCD plants will crank out screens on glass sheets measuring 1.9 by 2.2 metres, big enough for twelve 32-inch or eight 40-inch panels. LCD could thus push plasma upmarket, unless makers of plasma TVs drop their prices too.

The result is expected to be a fierce battle around the 42-inch mark. This may prompt buyers to look more closely at the relative merits of the two technologies, each of which has its pros and cons. Plasma offers higher contrast, which means deeper blacks. But although the longevity of plasma panels has improved in recent years, from 10,000 hours to 30,000 hours, LCD panels have a lifetime of 60,000 hours. LCD TVs also have the advantage that they can also be used as computer monitors. But their response is slower than plasma, so they are less suitable for watching sports.

With prices about to tumble, when is the right time to buy? There will be some good deals around in the next few months, says Ms Patel, as manufacturers start hyping their products again during the holiday season. Some prices will have fallen by as much as 40% compared with the same time last year. That may prompt many more people to take the plunge.